America’s small business owners are “cynical” and “negative.”
That was one unfortunate takeaway from the latest vintage of the NFIB’s monthly survey, released on Tuesday.
As I’m fond of reminding readers, small businesses comprise 47% of private sector employees in the US and accounted for 62% of net new job creation since 1995, according to the government. So, while corporate America might’ve hijacked capitalism and society more generally, small businesses are the lifeblood of the world’s largest economy. Their outsized role in hiring means they’re a key piece of the wage growth debate and inflation puzzle.
The headline NFIB gauge ticked up slightly, but at 90.3, it missed estimates. More importantly, it remained well below the five-decade average.
The index was below the long-term mean every month in 2022, and inflation was a big reason why.
The share who said inflation was their biggest problem fell six points to 26% in the January poll. That was a meaningful drop, but prior to 2021, inflation was basically a non-factor.
“The single biggest problem subcomponents [are] something to monitor as the dueling challenges of labor quality and inflation continue to present notable headwinds to business operation,” BMO’s US rates team wrote, of the NFIB release. Although inflation has unquestionably represented the biggest psychological overhang for small business owners, the still-tight labor market is a testament to “the economy’s ability to withstand ongoing tightening,” the bank went on to say.
It’s also a headache for owners, 45% of whom said they had openings they couldn’t fill last month. That’s still a very elevated reading from a historical perspective, and it underscores the difficulty small firms are having in “return[ing] to a full staff to improve productivity,” as NFIB Chief Economist Bill Dunkelberg put it Tuesday. Nine in 10 owners who tried to hire last month said they found “few or no qualified applicants.”
The outlook among owners for sales was poor. The net percentage reporting higher nominal revenue over the last three months remained negative, for example, and the percentage expecting higher real sales volumes dropped — “a weak set of sales conditions,” Dunkelberg remarked. An index of expected business conditions over the next six months improved from December, but at a net negative 45%, “improve” is something of a misnomer. The gauge hit a record low last year.
There were signs of a nascent inventory build up attributed to a familiar dynamic: Supply chains have normalized, but consumer demand is waning.
The most immediately relevant survey readings for the macro debate continued to paint an uncomfortable picture. The report spelled it out in unequivocal terms. “The net percent of owners raising average selling prices decreased one point from December to a net 42% seasonally adjusted, the lowest since May 2021 but far too high to be consistent with 2% inflation, the Fed’s goal,” the color accompanying Tuesday’s NFIB release said.
A net 46% of owners said they raised worker pay, suggesting that “while other input costs are falling, labor costs are resisting.”
